New York State Seizes Finances of Nassau County

The Nassau County Interim Finance Authority announced its plan on Wednesday to place the county's finances under its control.Credit
Chester Higgins Jr./The New York Times

UNIONDALE, N.Y. — A state oversight board on Wednesday seized control of Nassau County’s finances, saying the county, one of the nation’s wealthiest and most heavily taxed, had nonetheless failed to balance its $2.7 billion budget.

Many hard-hit local governments have flirted with insolvency because of revenue shortfalls caused by the recession, but the financial problems of Nassau, on Long Island, owed more to a failure by county officials to face up to tough economic reality responsibly and quickly enough, according to the state board.

“The county’s 2011 budget is built on a foundation of sand,” a board member, George J. Marlin, said.

The move, which came after months of steadily more ominous threats and a downgrade of Nassau’s debt by a credit-rating agency in November, turns the oversight board into a control board, with vast power to rewrite the county’s budget and veto labor contracts, borrowings and other important financial commitments.

Nassau’s tax receipts are the envy of many worse-off municipalities: its malls and busy retail districts, a short drive from New York City, help generate about $1 billion in sales taxes a year, and its aging bedroom communities add about $800 million in county property taxes.

But the county has resisted cuts in services, and its current leaders have been just as adamant about not raising taxes.

Nassau now finds itself joining much less affluent places in New York State, like the cities of Newburgh, Troy and Yonkers, that have had control periods imposed on them in recent years.

The only other county in New York that has been taken over in modern times is Erie, the state’s 24th-wealthiest county, where the median household income is about half that in Nassau, which is the richest county in the state.

“Some places manage their way into fiscal problems, and other places are beset by social forces, many of them outside of their own control,” said Steven J. Hancox, a deputy state comptroller who oversees local government. “Nassau has had a history where the populace has enjoyed a variety of services, and those cost money.

“It doesn’t really matter where you are; when the money dries up you have tough choices to make.”

While voting 6 to 0 to take over the county’s finances, the control board, the Nassau Interim Finance Authority, stopped short, for now, of declaring a financial emergency, which would also allow it to impose a wage freeze on county workers. But it said that remained a likelihood if Nassau’s leaders did not comply with its demands to cooperate in bringing the county’s spending into line with revenues by Feb. 15.

“The taxpayers elected a team,” the authority’s chairman, Ronald A. Stack, said. “Hopefully the team will be able to perform.”

Yet the takeover was a stinging rebuke to Nassau’s county executive, Edward P. Mangano, a Republican who took office a year ago after upsetting a popular incumbent in 2009. Mr. Mangano had repeatedly said the budget was balanced, and then insisted there were ample contingencies to cover any shortfalls. But the authority said that many of his assertions were unfounded or unsupportable.

Should the county choose to work closely with the authority, it could seek to reopen talks with labor unions, emboldened and newly empowered by that alliance. But the response from the county on Wednesday was adversarial in tone.

“Who elected them?” asked the county attorney, John Ciampoli, referring to the authority.

Mr. Mangano, speaking to reporters after the board’s decision, said he was considering a lawsuit to block the takeover, accused the authority of wanting to raise property taxes and urged taxpayers to question its “motivation.” He has accused the board members of having partisan Democratic sympathies.

Mr. Stack, a veteran municipal banker who as a state official was involved in addressing the 1975 New York City fiscal crisis, said the county’s deficit, under the strict accounting standards required by state law, was $176 million, or more than six times the threshold of 1 percent of the budget — above which the law required the authority to take control.

Using the county’s own more forgiving accounting rules, he added, the county’s deficit was $49 million, but still nearly twice the statutory trigger point for a takeover.

In a lengthy text explaining its decision, the authority said that Mr. Mangano’s signature tax cut — the repeal of a tax on home-heating fuel — was one of several factors that stretched the county’s ability to balance its budget to the “breaking point.”

Moreover, the authority said Nassau’s reserves had dropped to dangerously low levels.

A takeover would last only until the county’s budget was declared back in balance, but how long that will take depends largely on county officials, Mr. Stack said.

Mr. Marlin, a Conservative Party member, noted that he was an enthusiastic supporter of Mr. Mangano’s election, and even credited him with “some forward progress.”

And Mr. Stack said the board included a Republican and an Independent, along with three Democrats. “We have a 6-0 vote here,” he said. “It is not partisan. It is not political.”

Mr. Mangano, in his news conference, also questioned why the authority had refrained from imposing a wage freeze. And he insisted that a takeover was unwarranted, pointing to an 11th-hour tentative labor agreement with a county worker’s union, announced on Monday, that he said would mean tens of millions in annual county savings.

But Mr. Stack said the labor deal, which the authority now can approve or reject, would have saved only $2 million this year.

Nassau’s government, once a model for other suburban communities, has long been plagued by a tangled property tax-assessment system that forces it to refund tens of millions of dollars a year to residents and business owners who win appeals of their local, school and county tax bills. In effect, the county subsidizes some of the nation’s richest school districts.

The county first got into deep trouble a decade ago by borrowing to pay those refunds, though they are an operating expense, and by relying on one-shot revenues, rather than raising taxes. It averted disaster only with a $100 million state bailout in June 2000. As a condition of that aid, the state created the oversight board to ensure that Nassau corrected its poor fiscal practices.

Chief among those was borrowing to pay tax refunds, and some progress was made in switching to a pay-as-you-go policy. But Mr. Mangano’s financial plan called for borrowing $364 million over the next two years to pay tax refunds — “the very practice that precipitated the 2000 crisis NIFA was created to address,” the board said.

A version of this article appears in print on January 27, 2011, on page A1 of the New York edition with the headline: Nassau County Has Its Finances Seized by State. Order Reprints|Today's Paper|Subscribe